Provision for depreciation

What it means

The accumulated depreciation account, holding the total depreciation charged on a non-current asset to date.

Example

After 3 years at RM2,000 a year, the provision for depreciation is RM6,000.

Why it matters

It is deducted from cost to show the carrying amount; it is not a store of cash.

In practice

The provision for depreciation is a credit-balance account that sits in the statement of financial position. It is deducted from the asset's cost to give the carrying (net book) value. Each year the depreciation charge is debited to the income statement as an expense and credited to this provision account. The provision grows steadily while the asset's original cost stays untouched.

For a machine bought for RM10,000 and depreciated at RM2,000 a year, the provision after three years is RM6,000. The machine appears in the statement of financial position at RM10,000 less RM6,000, which is RM4,000.

Students often confuse the provision with the annual charge. The charge is one year's expense in the income statement. The provision is the running total of every charge to date. One is a flow for the period, the other is the total built up over the asset's life so far.

If depreciation accounts and the statement of financial position extract slow you down, one of our teachers can practise the entries with you. Book a trial class.

Related terms

• Depreciation
• Carrying amount
• Reducing balance method

Syllabus reference: Cambridge 0452 and 0985, syllabus for 2027 to 2029, sub-topic 4.2 Depreciation and disposal of non-current assets (page 14).

Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.